US court blocks Anthem-Cigna merger, dealing blow to consolidation

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By Diane Bartz and Caroline Humer

<span class="articleLocation”>A federal judge on Wednesday ruled against U.S.
health insurer Anthem Inc’s proposed $54 billion merger
with smaller rival Cigna Corp, derailing an unprecedented
effort to consolidate the country’s health insurance industry.

The U.S. Justice Department sued in July to stop Anthem’s
purchase of Cigna, a deal that would have created the largest
U.S. health insurer by membership, and Aetna Inc’s
planned $33 billion acquisition of Humana.

The merger would have worsened an already highly
concentrated market and is likely to raise prices, Judge Amy
Berman Jackson of the U.S. District Court for the District of
Columbia said while issuing the ruling against Anthem’s deal.

Last month, a different U.S. judge ruled against Aetna’s
proposed deal for Humana.

Government antitrust officials argued that both deals would
lead to less competition and higher prices for Americans. The
acquisitions would have reduced the number of large national
U.S. insurers from five to three.

Jackson had separated the Justice Department’s case into two
trials. Her ruling focused only on the first one in which the
Justice Department argued that the tie-up would hurt the ability
of large national employers to get competitive rates for the
health coverage they provide workers.

The second trial considered overlaps in the two insurers’
business selling health benefits to individuals, and
administering Medicare Advantage coverage to the elderly.

Anthem argued that there was enough competition because
large companies with more than 5,000 employees often used
multiple smaller players in the national market, but the judge
disagreed.

“Regional firms and new specialized ‘niche’ companies that
lack a national network are not viable options for the vast
majority of national accounts, and they will not ameliorate the
anticompetitive effects of this merger,” Jackson wrote.

Cigna intends to carefully review the opinion and evaluate
its options in accordance with the merger agreement, it said in
a statement.

Anthem said on Thursday that it intends to promptly file a
notice of appeal and request an expedited hearing of its appeal
to reverse the court’s decision.

PROTECTING CONSUMERS

Acting Assistant Attorney General Brent Snyder of the
Justice Department’s Antitrust Division said the ruling had
prevented American consumers from facing higher health insurance
premiums and less innovation.

Bill Baer, who was head of the Justice Department’s
antitrust division when it decided to sue to block both the
insurance deals but has since left the agency, also hailed the
decision. “Together with the decision on Aetna and Humana, this
preserves five large national providers of critically important
health insurance products,” he said.

The fifth player, UnitedHealth Group Inc. was not
involved in the deals.

Some Wall Street analysts expect all four of the companies
to now move on, although Aetna and Humana have not committed to
doing so. Their deal expires Feb. 15.

“The likelihood of success in an appeal would be very low,”
said Matthew L. Cantor, a partner in the law firm of Constantine
Cannon in New York. He noted points in the judge’s order about
the concentrated national market, the high barrier to entry for
competitors, and the companies’ roles as direct competitors.

The deals were announced at a time when former President
Barack Obama’s national healthcare reform law was fully in place
and the four insurers were growing in the individual insurance
market it established. The insurers said new costs, from higher
taxes to investments in new Obamacare products, were driving
their need for scale.

That landscape is less certain now. Aetna and Humana have
cut back Obamacare enrollment for 2017 after losses, and
President Donald Trump and fellow Republicans are weighing a “repeal and replace” path for Obamacare.

More deals may be in the offing, JPMorgan analyst Gary
Taylor said in a research note. “Given Anthem and Cigna’s
pursuit of Humana in 2015, we think new potential combinations
could emerge.” He does not expect shares in either Anthem or
Cigna to move given that investors had expected this ruling.

Cigna is entitled to receive from Anthem a $1.85 billion
break-up fee if the deal fails to win regulatory approval,
according to the merger agreement. The agreement also requires
Cigna to have put forth its best effort on that front.

But Anthem and Cigna disagreed about the deal in court,
Jackson wrote in her order, with Cigna refusing to sign off on
Anthem’s interpretation of how the companies could garner
savings.

Anthem is the largest member of the Blue Cross Blue Shield
Association and operates BCBS plans in 14 states. It and said it
could apply its discounts to Cigna members while Cigna said its
collaborations with doctors would save money.

Pre-merger integration was stalled and incomplete, the judge
said. (Additional reporting by Akankshita Mukhopadhyay and Dipika
Jain in Bengaluru)



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